ANCHORAGE, Alaska – Another large credit union has run into troubles with its member business loan program, prompting a suit filed by Denali Alaskan FCU against a prominent real estate developer to recover $17 million in delinquent loans.
The suit comes after the state’s third largest credit union reported a quadrupling in loan charge-offs in the fourth quarter to $7.3 million–all of it loans to the developer--causing a $4.3 million loss for 2007.
The problems at Danali Alaska are the latest highlighting credit unions’ expanding exposure to business lending, following last week’s Nebraska bankruptcy of a resort developer with a $10 million loan from Centris CU, and last year’s bankruptcy of a West Palm Beach condo developer with a $30 million loan from Eastern Financial Florida CU. Both credit unions reported big losses for 2007 and cast out their CEOs.
Denali Alaskan claims in its suit filed that local builder Lee Baker, Jr., the principal in Discovery Construction, used some of the credit union loan proceeds for personal expenses and made false statements about the progress on three condo projects financed by the credit union in order to get more financing, as the once-hot local real estate market has cooled.
The $382 million credit union says it is owed $9.8 million on Bryn Mawr condos; $3.8 million for Chugach Meadows and $2.6 million on Wasilla Lake View Estates.
Baker, one of the most successful developers in the state, has run afoul of the ongoing crisis in the real estate market and is being pursued by other lenders, as well.
"This is a company we’ve had a good relationship for some time and unfortunately, they haven’t paid us back," Keith Fernandez, vice president of marketing for Denali Alaskan, told The Credit Union Journal yesterday. He said they went to court to protect their position as creditors on the projects. "Ultimately, that’s our goal, to make a recovery."
The credit union has asked the court to order the foreclosure on the builder’s undeveloped or unfinished condos in the three projects. The credit union is also seeking foreclosure on the developer’s personal property.
Despite the problems, the Denali Alaskan is expecting a good first quarter, with net income of as much as $3 million, and is proceeding with expansion plans that include three new branches this year, according to Fernandez.
